14 Government intervention Flashcards
Direct taxation
Amount levied on a business or an individual that must be paid to the government e.g government tax
indirect taxation
Amount levied on a producer to increase the cost of a product e.g VAT
effectiveness of tax
- PED - inelastic are likely to see high price increases for the consumer but little change in quantity
- XED - if product can be easily substituted for one without the same level of taxation
subsidies
amount paid on a business to produce products - increase the supply - decreasing price and increasing quantity
effectiveness of a subsidy
- PED - price elastic are likely to see a relatively small price change for the consumer leading to large change in quantity
- XED - if consumers can switch to the subsisdised product then a relatively small subsidy can lead to a large increase in quantity
Government expenditure
- have direct effect on supply of a product i.e through a subsidy
- gov can spend where the effect might be more subtle increase employment in region - improve high street to encourage businesses
price control
a minimum or maximum price for which a product must be sold
price ceiling
- max price
- rent control new york mkinging rentals more affordable for lower incomes
price floor
- min price
- alchol in sctoland reduce negative effects of excesssive alchol consumption as a demerit good and negative externality
buffer stock system
syste of holding and releasing tsock to maintain a market price despite supply fluctuations
- bad supply - price will increase and if a necessity would cause hardship for households so then stock can be released from the buffer stock therefore increasing supply
- increased supply would decrease prices for producers so stock can be placed in storage to decrease supply
effectiveness of buffer stock
- product must be able to be stored in some format
- cost of storage may be added leading to inefficiency
- price ceiling and floor my be set incorrectly my led to excess supply or demand every year
public/private partnership
joint initiative between government and producer in order to supply to a market
legislation
laws that a government puts in place to govern the production and consumption of products
- reduce negative externality and demerit goods
- eliminate market for product so no legitimate supply and demand
- restrict supply (license) or restrict demand (n age limit on drinking)
effectiveness of legislation
- punishment for breaking law - must be seen as an effective deterrent
- chance of being caught
- costs of enforcement - limited funds available to enforce a range f laws - cost of enforcing pollution control may be too high
regulation
- rules that are specific to industry or market ad that govern the production or consumption of a product within market/industry